Crude Oil Surge Seen Spurring Price Hikes in Japan

Tokyo, March 18 (Jiji Press)–Surging crude oil prices stoked by escalating tensions over Iran are fueling concerns in Japan about an acceleration in price hikes for a wide range of products including daily goods. Rises in crude oil prices lead to hikes in prices of materials of plastics and agrochemicals, and help raise production and logistics costs through higher gasoline and electricity prices. With upward pressure on prices already observed in some sectors, an expert sounded an alarm over a possible economic slowdown. This month, major chemical makers reduced production of ethylene, a crude oil-based key material for various industrial products, one after another. Shin-Etsu Chemical Co. plans to raise its domestic prices of vinyl chloride resin, for which ethylene is used as a material, by 30 yen or more per kilogram from April. Mitsubishi Chemical Corp. has announced price hikes for some products including resin. Containership operator Ocean Network Express, jointly owned by Japan’s three major shipping companies, is set to introduce emergency fuel surcharges, to be added to freight shipping fees, in stages from Tuesday next week. The surcharges will vary depending on shipping routes and the types of cargo, with the maximum amount set at 210 dollars per unit of loading capacity. For cargoes departing from and arriving at ports around the Middle East, extraordinary fees of up to 3,400 dollars per container have already been charged, according to Ocean Network Express officials. The agriculture ministry is scheduled to raise its prices of imported wheat for sale to the private sector in April-September for the first time in three years, due to the weakening of the yen. The weighted average price of five imported wheat brands will rise 2.5 pct from the current level to 62,520 yen per ton. With the impact of the ongoing Iran crisis not included in the price change, the ministry may further raise the imported wheat prices in its next biannual revision. According to an estimate by Takahide Kiuchi, executive economist at Nomura Research Institute Ltd., crude oil prices would rise about 30 pct from the levels before the start of the U.S.-Israeli strikes on Iran in late February if transportation through the Strait of Hormuz remains disrupted for a long period due to Tehran’s effective blockade of the critical oil shipping waterway. The situation would likely lead to price rises of 29.9 pct for gasoline and 6 pct for electricity rates, and prices of daily goods such as detergents, shampoos and wrapping materials are also expected to increase. Among food items, carrots and cabbages are forecast to see price growth of around 5 pct, and meat and fish around 2 pct, dealing a further blow to households, which have already been hit hard by rising prices in recent years. If the scenario comes true, Japan would face a situation in which economic slowdown and inflation occur simultaneously, Kiuchi warned, adding that the possibility of the country falling into a moderate recession would increase. END [Copyright The Jiji Press, Ltd.]